What a No-Deal Brexit Means for UK Investors

Prime Minister Theresa May faces three defeats in the Commons, ministers were found to be in contempt of Parliament as the government had a hat trick of defeats and Members of the Parliament slammed the proposed EU deal. Things are, all in all, not looking very good.

Because of these additional complications, there is a lot of speculation on what the next moves UK investors should make. Many believe a no deal with the EU will cut UK’s ties severely and drastically stunt its economic growth. Primary among these predictions is analysis provided by the Bank of England, which foresees a 7% to 10% drop in GDP in the event of a no deal Brexit. On the bright side, economic growth may return by 2023. But still, that’s a sizeable 4-year gap.

During this period, the pound sterling will most likely take the hardest fall, considering that its value has been highly volatile since the 2016 referendum. Already, a November report from The Guardian states that the pound dropped by 1.9% against the US dollar and 2% against the Euro. The tumble coincided with the rising probability of a no deal.

Brexit’s impact on the stock market is a lot more subtle. For instance, the FTSE 100 enjoys an inverse relationship with the pound; hence it is likely to experience record high surges in a hard Brexit. This is due to the fact that most companies listed on this index, like pharmaceutical companies and oil firms, get their revenues from abroad.

Meanwhile, the bond market is at risk of a gilt blowout. Corporate bonds have already slumped 34% this year because of Brexit concerns affecting UK investments. With the probability of a no-deal Brexit increasing, Europe’s bond market may face an early year-end shutdown, with companies holding off issuing notes, and investors withdrawing from their commitment to funds deployment.

So what should UK investors do if the country walks away with an unsettled trade agreement with the EU? Experts believe that investors can escape disaster if funds were to be heavily diversified and invested in various areas. One way to do this is to balance the money between UK and overseas investments.

For instance, investors planning to spend on overseas properties can look to countries like Denmark and USA, according to a real estate infographic here on KitKash. Meanwhile, the housing market in the UK provides a solid foundation despite the drop in profits this year. This is because other factors can be considered, like affordability, tighter buy-to-let rules, and low mortgage rates.

Another option for UK investors today is to bank on safe haven investments. Gold is still the most popular investment, as FXCM emphasises how it has low volatility in times of inflation and other economic events. Gold is still the costliest among the precious metals despite the removal of the gold standard, and has a history of coming through uncertain times unscathed. Hence, investors can rely on gold to help them cope in the event of a hard Brexit.

Lastly, a no-deal Brexit will likely have an impact on pensions, too. There are thousands of British pensioners currently living in EU countries, and they receive their UK pensions annually. It is highly possible that a hard Brexit will spark a hostile relationship between the UK and the EU, and pensioners may find themselves in a complicated predicament.

To prepare for such a scenario, advisers recommend making drawdown arrangements. This involves taking sums from their pension pot as income, and assigning the rest to investments.

Experts and analysts are confident the UK can bounce back, whatever the outcome of the negotiations may be, but there’s no telling how long the timeframe for that may be. Perhaps a no deal may entail a hard economic slump in the first few years, but growth will return soon after.